General Mills Sets Sights on China for Yoplait: is this Too Little, Too Late?
By Raphael Moreau – Food Analyst
General Mills began constructing a new plant in Eastern China and the group’s first research centre in the country in the second half of 2014. This was with a view to start producing Yoplait yoghurts in China by the end of 2015, under a US$15 million investment. While growth prospects for yoghurt sales remain promising, with more consumers attracted by functional pro/pre-biotic yoghurts’ health properties, is Yoplait likely to gain a strong competitive advantage as a late entrant against well-established local and international brands?
Late entrant facing powerful local players
Yoplait is mostly present in developed markets, with North America and Western Europe together accounting for over 80% of the brand’s sales in 2014, while Asia Pacific generated a paltry 3%. When General Mills acquired a majority stake in Yoplait from its previous owner, Sodiaal, in 2012, the group stated that bringing the brand to China was on the agenda. Already the world’s largest yoghurt market in 2014, China is forecast to generate over 40% of global absolute growth in value sales over 2014-2019. Per capita consumption is expected to rise from 4.0kg to 6.4kg over the same period, gradually closing the gap with Japan and South Korea, which stood at 11.8kg and 9.0kg respectively in 2014. Alongside other Asian markets, consumption of drinking yoghurt in China exceeds that of spoonable yoghurt, although the latter category is expected to continue recording stronger growth.
However, yoghurt is increasingly concentrated in China, with the top five players, of which four were local companies, together accounting for an estimated 73% of category sales in 2014. The most popular brands, such as Mengniu and Momchilovtsi (Bright Food), made strong inroads by reaching a larger number of consumers through wider nationwide distribution. This was helped by their focus on ambient yoghurt, offering easier logistics, which among the top four players only Wahaha failed to replicate.
Therefore, it is challenging for global new entrants to build a major presence by covering a wide proportion of the Chinese population, as shown by the largest foreign player, Yakult, only ranking fifth in 2014. As local manufacturers are rapidly improving their quality reputation against foreign-owned brands and focus on innovations, differentiation strategies are also more difficult to achieve for foreign brands. The rising popularity of functional spoonable yoghurts, benefiting from their perception as improving the immune and digestive systems, has largely been driven by domestic companies, notably Bright Food and Bright Dairy, the latter having acquired Australian yoghurt producer Mundella Foods in early 2014.
Source: Euromonitor International
Yoplait set to remain a niche brand despite market potential
In a competitive environment already dominated by local producers, Yoplait could benefit from opting for a co-branding strategy. In Japan the brand has developed such an agreement with Meiji under the Gurt brand, available in squeezable pouches for on-the-go consumption targeting children. A similar strategy could also be explored at a later stage by Yoplait in China. Such a move could allow Yoplait to leverage a large domestic company’s production and distribution capacity to bring wide exposure to its brand, while emphasising its positioning as a foreign brand using clearly identifiable differentiation elements.
While the Chinese market remains vast enough to bring rewards to new entrants, they are likely to increase their chances of success if they emphasise functional credentials. Among large global yoghurt manufacturers competing against Yoplait, Meiji opted for such a positioning as it introduced the chilled pro-biotic yoghurt range Meiji Bulgaria to China in December 2013, also accompanying the launch by setting up a local production unit. Meiji plans to achieve sales worth ¥2 billion (US$17 million) by 2016 – a modest target which would only give the company a share of around 0.2% in yoghurt, reflecting its premium positioning. While Yoplait can expect to at least match this performance, it is similarly likely to remain a niche player, and would therefore benefit from targeting specific consumer groups, for example through packaging designed for on-the-go consumption, or with more innovative functional recipes.